The Effects of Adult Longevity on Saving

Tomoko Kinugasa, Graduate School of Economics, Kobe University
Andrew Mason, University of Hawaii at Manoa

Many countries experienced a remarkable increase in life expectancy during the 20th century, but the development implications have received only modest attention. We analyze steady state and out-of-steady-state effects of the transition in adult longevity on the national saving rate using an overlapping generations model. We show that the national saving rate depends on both the level and rate of change in adult survival. Countries with rapid transitions have particularly elevated saving rates. Analysis using world panel data supports the hypothesis that countries with higher adult survival have higher saving rates. The rate of change in adult survival has an additional effect on saving, as hypothesized, in Western and high-performing East Asian countries. Further support for the model is found in the long-term historical experience of countries for which data covering more than one-hundred years are available.